Shane Glenn – VP, IR David Reis – CEO Erez Simha – COO and CFO.

John Baliotti – Janney Montgomery Scott LLC James Ricchiuti – Needham & Company, LLC Troy Jensen – Piper Jaffray Kenneth Wong – Citigroup Wamsi Mohan – BofA Merrill Lynch Amit Daryanani – RBC Capital Markets Weston Twigg – Pacific Crest Securities Pete Misek – Jefferies Ajay Kejriwal – FBR Capital Markets & Co.

Steven Milunovich – UBS Jonathan Shaffer – Credit Suisse AG Brian Drab – William Blair.

Good day ladies gentlemen and welcome to the Q1 2014 Stratasys Earnings Conference call. My name is Sheena and I’ll be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. And now I’d like to turn the call over to Mr. Shane Glenn, Vice President of Investor Relations. Please proceed, sir..

Thank you, Sheena. Good morning, everyone and thank you for joining us to discuss our first quarter financial results. On the call with us today are David Reis, CEO and Erez Simha, CFO and COO of Stratasys.

I’ll remind you to access to today’s call including the prepared slide presentation, is available online at the web address provided in our press release. In addition, a replay of today’s call, including access to the slide presentation will also be available. It can be accessed within the Investors section of our website.

I’ll remind you that, certain information included or incorporated in this presentation may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements are often characterized by the use of forward-looking terminologies such as may, will, expect, anticipate, estimate, continue, believe, should, intend, project or other similar words, but are not the only way these statements are identified.

These forward-looking statements may include, but are not limited to, statements relating to the company’s objectives, plans and strategies, statements that contain projections of results of operations or financial condition, including with respect to the MakerBot acquisition and all statements other than statements of historical fact that address activities, events or developments that the company intends, expects, projects, believes or anticipates will or may occur in the future.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties.

The company has based these forward-looking statements on assumptions and assessments made by its management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things, the company’s ability to efficiently and successfully integrate the operations of Stratasys Inc.

and Objet Limited after their merger as well as the ability to successfully put in place and execute an effective post-acquisition integration plan for MakerBot and the company’s other acquisition including one announced on April 2nd, 2014.

The overall global economic environment; the impact of competition and new technologies; general market, political and economic conditions in the countries in which the company operates; projected capital expenditures and liquidity; changes in the company strategy, government regulations and approvals; changes in customers’ budgeting priorities; litigation and regulatory proceedings; and those factors referred to under Risk Factors, Information on the Company, Operating and Financial Review and Prospects and generally in the company’s Annual Report for 2013 filed on Form 20-F and other reports that the company files with the U.S.

Securities and Exchange Commission. Readers are urged to carefully review and consider the various disclosures made in the company’s SEC reports, which are designed to advise interested parties of the risk and factors that may affect its business, financial condition, results of operation and prospects.

Any forward-looking statements in this presentation are made as of the date hereof and the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

Now I’d like to turn the call over to David Reis, Chief Executive Officer of Stratasys.

David?.

Thank you Shane and good morning everyone. Thank you for joining today’s call. We are very pleased with our first quarter results. In first quarter, we have enjoyed strong demand for our higher margin products which helped to drive a 33% increase in organic revenue over the prior year.

The strong growth of our higher margin products and services contributed to an impressive gross margin of 61% for the first quarter, representing an expansion over both prior year and the fourth quarter of 2013.

MakerBot products and services contributing impressive revenue of approximately $21 million during this period, a 79% increase over the revenues that MakerBot generated as an independent company during the first quarter of 2013.

We invested in sales, marketing and product development project during the first quarter; especially around MakerBot products investments which we believe will help us sustained strong growth over the coming periods.

More recently, we announced the major new initiatives through our agreement acquire Solid Concepts and Harvest Technologies which we believe will create the leading strategic platform to meet our customer growing additive manufacturing needs.

Finally, our outlook for 2014 remains very positive as we continue to position the company for future growth through enhancements in our organization structure to support our growth objections. I will turn later in the call to provide you details on these development and our strategy moving forward.

But first I would like to turn the call over to our CFO and COO, Erez Simha, who will provide you details on our financial results.

Erez?.

Thank you David and good morning everyone. As in previous quarters, our focus on today’s call will be on non-GAAP financial results. These Non-GAAP financial measures will be in combination with our GAAP metrics to evaluate our performance. We also note that, we are not providing any pro forma financial results for the MakerBot division.

MakerBot results were included in the GAAP and Non-GAAP results commencing August 16, 2013. The non-GAAP to GAAP reconciliations are provided in a table contained in our slide presentation and press release. As David mentioned in his opening remarks, we are very pleased with our third quarter performance.

We generated foreign brand organic growth and generated impressive growth margin driven by the demand for our higher margin product and services.

Operating expenses expanded in the period in the third quarter, compared to the third quarter of 2013 driven by significant investment in sales and marketing programs to support new MakerBot products production.

These expenses are in line with our guidance we provided at the end of the fourth quarter and are according to part of our strategy to accelerate future growth. Net income was $20.6 million for the first quarter or $0.40 per diluted share, compared to net income of $17.6 million or $0.43 per diluted share reported for the same period last year.

The effective tax rate declined to 3.8% for the first quarter, compared to the effective tax rate of 15.1% in the same period last year. Our fixed expense were be impacted by the uniqueness of taxable income that favored lower effective tax rate. We expect our annual tax rate to be around a low end of our long-term target operating module in 2014.

Product revenue in the third quarter increased by 66% to $129.5 million, as compared to $82.8 million for the same period last year. Within product revenue, system revenue increased by 71% in the first quarter over the same period last year, driven in large part by MakerBot’s impressive contribution to the quarter.

System revenue growth excluding MakerBot products was also impressive for the period growing by 40% over the last year. We observed good growth across all our lines, driven by their ongoing deduction of manufacturing and high-end prototyping applications. A notable area of expense as I’ve said, Objet500, Connex3, Color Multi-material 3D Printer.

The first and only 3D printer to combine color and multi-material 3D printing and the 400 production system which produces production parts made of highly durable plastics. Within products revenue, consumer revenue increased by 36% in the first quarter, compared to the same period last year or 29% when excluding MakerBot revenue.

Consumable revenue continue to be driven by an acceleration in customer usage, our growing demand of system and our efforts surrounding application training and materials education.

We believe that our growing end use and specifically the product of the production period and high-end design systems is a positive indicator of consumable revenue growth in future period. Service revenue in the third quarter increased by 41% to $21.7 million, as compared to $15.4 million for the same period last year.

The growth in service revenue was driven by increased revenue from maintenance contract and service parts, reflecting our growing base of installed system. Revenue from our RedEye paid parts service increased by 4% during the first quarter over last year.

We believe this slower growth in rest of RedEye sales for the first quarter in an isolated event and we expect sales growth will rebound in the second quarter. We shipped 8,802 3D printers and additive manufacturing systems in the first quarter, as compared to 1,168 units shipped in the first quarter last year.

The significant increase in unit shipments resulted primarily from the inclusion of MakerBot products. However, we also observed strong unit sales growth across our other product lines during the first quarter, driven by sales of our high-end production in PolyJet system.

Including all systems sold by Stratasys, Objet, Solidscape and MakerBot, since their respective inception, the company has now sold 84,620 units worldwide on a combined basis as of March 31, 2014.

As we mentioned earlier, sales of the company’s higher-margin products and services drove a significant increase in gross margin for the first quarter, which expanded to a record of 60.9% compared to 59% for the same period last year and we believe that this is more impressive when you consider the significant amount of MakerBot products revenue in the quarter, which inherently maintained lower growth margins.

Operating expenses increased materially in the first quarter, compared to the first quarter of 2013, driven by the inclusion of MakerBot as well as increased sales, marketing and R&D investment to find growth in new product development.

In addition, we made significant incremental sales and marketing investments that targeted by MakerBot product expansion. Net research and development expenses increased by 54.4% to $15.3 million in the first quarter, as compared to the same period last year. R&D expenses, as a percentage of sales were 10.1% similar to the same period last year.

SG&A expense increased by 95% to $54.1 million for the first quarter, as compared to the $27.7 million for the same period last year, primarily driven by the inclusion of MakerBot as well as changes in our product distribution strategy involving an increase use of independent sales agent which resulted in increased sales commission, incremental expenses for strategic and marketing initiative and an increase in headcount and infrastructure to support our growth.

Compared to the first quarter operating margin is expected to remain higher for the remainder of 2014 and projected to remain relatively consistent for the full year when compared to the level recognized in 2013. Slide 10, provide you with an overview of the major growth drivers we have discussed for the period.

The following slide provides you a breakdown of our geographic service.

The Asia Pacific region continue to be our fastest growing region on an organic basis, driven by our impact of sales and marketing investments in that region revenue in all regions including the first quarter of 2014 as compared to the first quarter of 2013 due to strong demand for our products as well as the including of MakerBot revenues.

MakerBot revenues was generated primarily in North America. I want to review the specific reconciliation to GAAP for the Non-GAAP measures we have discussed throughout our presentation today. This information is provided in the slide appearing at the end of the presentation as well as in our earnings release.

We maintained approximately $607.5 million in cash and cash equivalents and short-term bank deposits on our balance sheet amounting to $12.3 per share, which was relatively unchanged versus the balance at the end of the fourth quarter of 2013. Net operating cash flow from operations in the first quarter was $4.9 million.

Capital expenditure amounted for approximately $10.9 million in facility and recruitment investment. Our strong cash balance combined with our available $250 million revolving credit facility provide us with flexibility to find our internal growth plan as well as future M&A in shipping.

Inventory increased to $99.8 million in the first quarter, compared to $88.4 million at the end of the fourth quarter, primarily due to the – to allow for inclusive flexibility as well as new product introduction.

Account receivable increased to $106 million in the first quarter, compared to $99.2 million at the end of the fourth quarter, while DSO on 12 month trailing revenue was 72 compared to 74 in the fourth quarter. In summary, we are very pleased with our first quarter results.

We generated impressive organic sales growth combined with a strong revenue contribution from MakerBot. The reported and impressive expansion in our gross margin, driven by sales of our higher margin products and services.

We should also highlight that our core business excluding MakerBot experienced an expansion in operating and net margins over the last year, which was offset by significant investment in MakerBot market development bodies to drive future growth.

And finally, we had a strong balance that continue to position the company for future growth for strategic investment as well as recent acquisitions. I would like now to turn the call over to our VP of Investor Relations Shane Glenn who will now give you detail on our financial guidance.

Shane?.

Thank you, Erez. Stratasys reiterated the following information regarding the company’s projected revenue and net income for the fiscal year ending December 31, 2014. Revenue guidance of $660 million to $680 million, non-GAAP net income of $113 million to $119 million or $2.15 to $2.25 per diluted share.

GAAP net income of 10.5 million to $19.9 million or $0.20 to $0.38 per diluted share. We expect organic sales, which excludes MakerBot sales to grow at least 25% over 2013 and additional growth coming from MakerBot, which is expected to grow at a higher rate.

Stratasys provided the following additional information regarding the company’s performance and strategic plans for 2014. Financial guidance excludes the impact of the company’s pending acquisitions of Solid Concepts and Harvest Technologies.

Those transactions are expected to be completed early in the upcoming third quarter subject to customary closing conditions and are expected to be accretive to Stratasys’ earnings per share within the first 12 months after closing.

Operating expenses are projected to expand materially in 2014, driven by investments in sales and marketing programs to drive future market adoption as well as by increased R&D investments to fund technology innovation and new product development.

Incremental sales and marketing investments will focus on expanding sales channels, enhancing regional infrastructure and building unique go-to-market programs targeting certain market verticals and customer applications.

Compared to the first quarter, operating margins are expected to ramp higher for the remainder of 2014 and are projected to remain relatively consistent for the full year, when compared to the level recognized in 2013.

Operating margin expansion in the company’s core business is expected to be offset by a full year impact from MakerBot, which is investing aggressively in market development and new product introductions.

Projected net income is expected to be derived disproportionately from the second half of fiscal 2014, driven by the projected timing of operating expenses as well as the projected timing and success of new product introductions and their corresponding ramp up in sales.

Capital expenditures are projected at $50 million to $70 million, which includes significant investments in manufacturing capacity in anticipation and support of future growth. Non-GAAP earnings guidance excludes $64.8 million of projected amortization [Technical Difficulty].

Thanks, Sheena. We’re back in call. Okay. I’ll turn it back over to David Reis, CEO of Stratasys..

Thank you, Shane. Dynamic industry continues to grow rapidly and we continue to invest in projects that support our core strategic objectives.

These objectives includes leadership in the prototyping market, the extension it to direct user manufacturing, introduction of new niche vertical application, the acceleration of new solution to market, improvement in 3D printing accessibility and improvement in customer intimacy.

A major new strategic initiative we’ve recently announced revolve around our intent to acquire two privately held companies, Solid Concepts and Harvest Technologies. As you know, at Stratasys, we have a strong track record of acquisitions to drive shareholder value including that transactions with MakerBot and Objet.

The acquisition of Solid Concepts and Harvest Technologies are consistent with our core strategic imperatives and M&A strategy which is focused in acquiring leading companies to support our goal of continued leadership in the areas in which we operate as well as reaching new niche verticals.

Solid Concepts bring deepened knowledge of manufacturing and vertical focus in medical and aerospace and Harvest Technologies brings experience in power production as well as material and system knowhow.

Together with RedEye, these two leading providers are expected to strengthen our direct vision manufacturing and part production expertise, enabling us to enhance value for our customers and our shareholders alike.

With additional Solid Concepts and Harvest Technologies, we intend to create a leading strategic platform to meet our customer additive manufacturing needs through the extended technology and business offering.

Upon closing, Solid Concepts and Harvest Technologies will merge with our RedEye digital manufacturing service business, Joe Allison, the President of Solid Concepts will join the Stratasys’ management team and release the combined parts business supported the leadership team of Solid Concepts, Harvest Technologies and RedEye.

We expect that the larger combined part business will provide more opportunities for both parts and systems sales by addressing a full range of customer needs under one roof.

Solid Concepts and Harvest Technologies provides Stratasys with significant capacity, process knowhow experience allowing us to expand into a broad range of capabilities and application expertise across a wide new range of new and existing applications.

Once Solid Concepts and Harvest Technologies have been integrated into single business unit with RedEye, Stratasys will look to leverage opportunities in selling systems and service across our large customer base. Furthermore, the transaction beings compelling financial benefit as both companies have strong financial track records.

The transactions are expected to be accretive to our known GAAP EPS within the first 12 months after closing. Employees across all levels of the three organizations are excited about creating a new industry leader with this combination and the opportunities they will have as part of the larger company.

As we mentioned previously, the transactions are subject to customary closing conditions and we expect to complete the transaction early in the upcoming third quarter. We believe Stratasys is a leader within our industry which is reflected into nine revolutionary systems and multi-material we have introduced over the past 18 months.

In the first quarter alone, we launched a total of five new systems and two innovative new materials. This includes recently announced Objet500, Connext3, color multi-material 3D printer.

The new system is a groundbreaking 3D printer which combines color with multi-material 3D printing and feature a unique triple jet technology that allows the user to combine color with a wide variety of combination of flexibility and transparency.

We have seen very high demand for the Connex3 and are encouraged by the customer feedback that we have been receiving. At CES, we announced new 3D printing platform design to improve system affordability, reliability, ease of use and user connectivity.

The new MakerBot replicate the platform is an up enabled platform that includes three new fifth generation MakerBot replicator 3D printers. The MakerBot Replicator Desktop 3D printer, the MakerBot Replicator Mini Compact 3D printer and MakerBot Replicator Z18 3D printer.

Towards the end of the first quarter, we began shipping the new MakerBot Replicator 3D printer and announced the availability of the MakerBot Mini Compaq 3D printer, and the MakerBot Z18 3D printer for pre-order.

Demand for new MakerBot Replicator products has been strong and we expect to all three products to begin shipping by the end of the second quarter. Our new MakerBot Replicator product line provide unmatched speed, reliability, quality and connectivity.

Combined with our MakerBot 3D Printing ecosystem which include MakerBot Digital Desktop 3D Scanner, MakerBot Digital Store as well as new and exciting desktop and mobile application, Replicator platform deliver easier to use and reliable desktop 3D printing to a full range of customer, procurers and professional users.

Most recently, we announced an advanced simulated polypropylene material suitable for high-end prototyping applications for use with all even Objet Eden, Connex, Connex3, and Objet 30 Pro 3D Printers.

And duly the second stimulated polypropylene material we have launched and is ideal for building top prototypes to snap fit a component leaving engines another demanding applications.

The strong demand we are observing for our premium product such as Connex3 is reflective of our growth we’re seeing the growth entire line of higher margin system in the fields.

Direct vision manufacturing and high-end prototyping applications have been the driving force behind this demand, which has been a contributor factor our strong gross margins. We expect this trend to continue in the coming quarters.

In addition to our focus on exciting new product and investing in platform to meet our customer growing needs, we must invest in building the necessary corporate infrastructure that can support our future growth objective. To this end, we recently announced and close acquisition of certain assets of Interfacial Solutions.

Interfacial Solutions provide significant expertise in drastic and similar developments. We believe that its knowledgeable team and experience we accelerate Stratasys material development effort for all our FDM platform including MakerBot.

This acquisition is expected to accomplish three objectives for Stratasys, which include strengthening our material R&D skills and bandwidth, enabling us to become vertically integrated in material development and manufacturing and increasing material production space and capacity.

Overall, we expect to accelerate new material development allowing us to introduce new product to market softer. The revenue synergies resulting from the successful Stratasys-Objet merger combined with a rapidly growing marketplace are once again reflected in the strong organic revenue growth which we generated during the first quarter.

We remained pleased with the results of our sales, marketing and service integration and now we are excited to announce that, we have completed the global alignment of our company R&D operation which results from Stratasys-Objet merger.

As Stratasys grew, we must build the foundation that allows an ongoing emphasis on innovation and product development, which provides necessary tools to fully leverage our product and servicing to the marketplace. In summary, we are extremely pleased with our first quarter results.

The market demand for our industry-leading products and services remained very strong. The rapid adoption of our higher-margin product and service help to drive strong organic revenue growth and significant increase in our gross margin.

MakerBot product revenue remained strong and we continue to invest aggressively in sales, marketing and product development initiatives as we believe in driving incremental growth over the coming periods.

We believe that the platform created by our pending acquisition of Solid Concepts and Harvest Technologies will create a comprehensive solutions for our customers and will help to drive incremental growth opportunities. We announced and begin shipping multiple new systems in the fields with additional system shipping before the end of Q2.

In addition, we continue position the company for future growth to enhancement to our organization structure and to strategic investment in channel, product and technology development. We believe this investments combined with our ongoing acquisition strategy will support our growth objective of position of market-leader going forward.

And finally, we continue to observe favorable market environment and remain on track to meet our financial projection for the year. Operator, please open the call for questions..

(Operator Instructions). Please stand-by for first question. John Baliotti, Janney Capital Markets. Please proceed. Mr.

Baliotti is your handset on mute sir?.

Can you hear me now?.

We can sir. You can proceed..

I am sorry. There is something on my handset. So, I apologize. Now I see the spending in the quarter is very consistent with how you laid out the year in terms of what you expect given the strategic investments you are planning to make. I am curious you have really good absorption of that cost in the first quarter.

So, we compared on as a percent of sales basis, but leverage is very significant and I am wondering were you able to take advantage of the strong revenues and accelerate your strategy in this quarter or do you pretty have yield laid out as planned?.

Hi, John. We did accelerated a little bit. I am not sure it is significant enough for you to change the model but we did increased the level of investment in this quarter. Again, mainly around MakerBot.

One we understood that the revenue is going to be a little bit higher than our expectation, they allowed us to spent a little bit money is order to accelerate a growth around MakerBot business..

Great. And Erez, just follow-on to that. Obviously, this bowls well because these investments you’re making are geared to growing the company at these accelerate higher rates and it seems just that bowls very well for future leverage.

Do you agree with that?.

Yes. Absolutely..

Right. Thank you very much. Congratulations..

Thank you..

Thanks, John..

Jim Ricchiuti, Needham & Company. Please proceed..

Hi. Thank you. Erez, I just like to pursue a little bit the operating margin leverage issue. Particularly as you look into the back half of the year, it’s clearly sounds like it’s going to be a function of the top-line growth.

But, I wonder if you could give some sense as to your comfort for the expansion in the second half coming from maybe some efficiencies on the cost side. I mean, clearly you are ramping up OpEx. But you know as you look at the back half and you look at your guidance, it’s pretty significant versus where were are starting the year.

So, it’s just comfortable with operating leverage..

Jim, I think the level of investment that we made in Q1; A, is in line with our plan. And B, I think this is what we talked when we discuss at the end of Q4 our plan this is what we said that we will do. There is nothing there that has changed our plan.

I think that, we will be able to leverage the operating margin a little bit in Q2 and more in H2 once we see higher revenue due to a new product introduction.

MakerBot has two new products targeting two new markets and the product will be available only at the end of Q2 commercially and I think that will have a low impact or small impact on our Q2 revenue.

The same is with Stratasys we have our new stuff coming that we have invest in order to introduce as a market and this will happen probably end of Q2, Q3 and Q4 and will impact our H2 revenue..

Okay.

It sounds like nature of the sales and marketing investment can be described as more infrastructure?.

Okay. Thank you. That’s helpful..

Thank you..

Thanks, Jim..

Troy Jensen from Piper. Please proceed..

Hi, gentlemen. Congrats on the nice quarter. May be a first question for David here.

David, can you just talk about industrial applications and kind of the movements you’re seeing there? I’d love to get thoughts on how Fortus is growing? It seems like that’s probably the better product line for some for the industrial applications are receiving?.

We typically don’t break it between different high-end machines, but you’re right, our leading industrial product is around Fortus line. Nevertheless, we see adoption of PolyJet technology for some manufacturing applications. In general, we see the really strong growth as far as manufacturing both for PolyJet and of course for Fortus..

Would you see like there has been any inflection in that piece of the business or may be an inflection soon?.

I don’t like the word inflection. I think we see a steady, very strong growth..

Okay, perfect. How about equipment, just to challenge a little you guys are still at 32% organic growth and I think you’re targeting 25% and you just reiterated it.

It seems like what we calls the market has slowed down that dramatically to this 25% target?.

So, when we put the guidance in the beginning of the year, we guide the market for more than 25% organic growth. If you look at 2013, H2 of 2013 was extremely strong compared to H1 due to the integration issue that we had. Nevertheless, we will update guidance. We’ll discuss the growth of 2014 also once we close the Solid Concepts and Harvest..

Okay. Good luck going forward..

Thank you..

Ken Wong, Citigroup. Please proceed..

Hi, guys. It sounded pretty clear MakerBot was much better than you guys expected.

Can you provide any early color on just a few weeks that you guys had with MakerBot Mini and the Z18 orders?.

The Mini and Z18, we only see booking. They are not available for shipment. They will be available for shipment, the Mini will be available in two weeks and 18 at the end of Q2, but we do a see strong flow booking for both Mini and Z18..

Okay. Got you. And then perhaps just maybe quick follow-up on your services business.

Can you perhaps give us a little more color on what that one-time potential impact on RedEye was weaker?.

It continue to be kind of a one-time even we expect in June, 2014. RedEye experience much more growth. Let’s describe it as kind of one-time event or short time event.

Nothing unusual behind it..

Okay. So, just a little bit of softness but perhaps you’re not seeing....

If you remember what you’re experiencing from many quarters is very significant growth. So, there is always a little bit slowdown in the growth. It’s not negative in anyway and we expect in the continuation of the year RedEye will continue to grow rapidly..

All right. Great. Thanks a lot..

Wamsi Mohan, Bank of America Merrill Lynch. Please proceed..

Yes. Thank you.

Can you talk a little bit about the trajectory of the operating expenses for the course year? So, if you if you continue to beat on both the revenue and gross margin as you did this quarter, will you continue to increase OpEx to keep full year operating margin flat or will you let some of the flow through and keep sort OpEx with the level spend you expected at the beginning of the year? And I will follow up..

We usually do not provide any specific operating expenses projections. I think as compared to the first quarter, operating margin are expected to ramp higher for the remainder 2014 and are projected to remain relatively consistent with the full year when compared to the level of 2013.

And again, we expect the same for gross margin to be at the level of 2013 maybe a little bit higher. I do expect some operating level during H2..

Okay, great. And can you give us some sense of the magnitude of the margin improvement quarter-on-quarter excluding MakerBot? Was it all from systems mix and how suitable do you view that? Thanks..

I think that, in the organic business of Stratasys, we do see ongoing improvement in both the gross margin and the operating margin. We is better ASP on the core business. We do not provide any standalone information and due to competition. We’re positioned for strong result of the Stratasys business.

I think due to the fact that the strong result of Stratasys business, allow us to invest a little bit more even in the MakerBot product in anticipating of introducing new product and may be to accelerate the growth there..

I want to emphasize that, I think over the last few quarters, we provide more and more value and like I said as a result we see improvement in ASPs which is affecting in the gross margin..

Okay. Thanks Erez..

[inaudible], Goldman Sachs. Please proceed..

Good morning everyone. Just on the SG&A year-on-year increase, it seems like you basically doubling the expenses there.

The incremental let’s call it $26 million on the year-on-year basis, could you maybe breakout how much is that for new product introduction, how much is that for selling? Just trying to understand really, really what the components of that I guess incremental $26 million are?.

I think that, when you compared Q1, 2013 and Q1, 2014 the picture is little bit misleading. You’re looking at Q1, 2013 Stratasys standalone and you’re looking at Q1, 2014 Stratasys and MakerBot together.

A significant part of the incremental increase of SG&A due to the increasing of MakerBot business in our consolidated report and the entire incremental spend that you see around the new product introduction..

Understood.

And then just because revenue would have been better on MakerBot than you guys are expecting, do you how much of the incremental spending you have pulled into the quarter if you will?.

We do not provide such information..

Sounds good. Thank you..

Thank you..

Amit Daryanani, RBC Capital Markets. Please proceed..

Thanks a lot. Good morning guys. Two questions from me.

One I guess, I’m going to ask a fair bit today, but given the upside of March quarter revenue that you guys had, could you may talk about what the hesitancy not taking a full year numbers higher at least by the magnitude to beat March? And do you still see the linearity for 2014 will be 40:60 for first half and second half of year?.

I’ll try to answer both questions in one answer. I think Q1 is too early for us change the guidance for 2014.

However, we plan to discuss the guidance and probably to update the guidance once we close Solid Concepts and Harvest and then we’ll discuss the impact of Solid Concepts and Harvest in 2014 and if any change applicable for the Stratasys business in 2014..

Fair enough. I guess you guys have talked about the strength you see in Fortus, that’s one of the drivers of systems growth up.

Can you may be talk about what end markets was seeing better adoption especially from the manufacturing basis?.

Yeah. Maybe just to elaborate, it was strong growth that you see both on the Fortus side and the PolyJet side. As we said in the script, we saw a very strong demand for Connex3.

As talk to Fortus, a very high percentage of those machines are being sold for a manufacturing application especially the augmented manufacturing such as fixture guys and so on and then we do see increased demand there..

Thank you very much..

Weston Twigg, Pacific Crest Securities. Please proceed..

Hi. Thanks for taking my question. I was wondering actually, if you could maybe explain a little bit more regarding your efforts to line R&D and operations globally. Maybe you have some detail, what specifically was accomplished.

And then I’m also wondering were there more opportunity for improvement in that aspect?.

Just to go back to a little bit history when we merge Objet-Stratasys, we said the time that we’re going to spend for first 18 months combining and merging our sales, marketing, service, operations globally which we’ve done successfully.

When this was concluded about two, three months ago, we consolidated and aligned our product, R&D and operations under each one in his own organization and today organization are consolidated and I think overtime we will be able to extract some synergies for this consolidation..

Okay. So, there is more opportunity streamline R&D in operations even further..

Yes, mainly operations..

Good. And then just as my follow up, you said, you’ll reiterate or reiterate but update guidance later in the year when you acquire Solid Concepts and Harvest Systems. I just wanted maybe you can give us a preliminary look ahead, presumably will be diluted initially.

If you could give us an idea of if you actually close in early Q3 or like you hope what the full year guidance or might look like?.

No. We’ll do it only upon closing of Solid Concepts and Harvest..

All right. Thank you..

Pete Misek – Jefferies. Please proceed..

Thank you, gentlemen. I had a question just in terms of anymore detail you can give us last time on Solid Concepts and Harvest about the rationale for doing the two at once and the potential roadmap. I noticed on the slide, there is some interesting materials being used, I’d love to understand that.

And then maybe we can walk through the pipeline on the industrial side, if you give us a sense for the pipeline of backlog looks there? Thank you..

Good question. So, the rationale is being both transaction at the same time has to do with the slightly different expertise of those companies are bringing to the table. Solid Concepts is the leading service giver I think in U.S. and maybe worldwide.

It bring to table a lot of knowledge in both prototyping and BBM and part applications with a lot of relevant technologies. Harvest on the other hand is more focused on end-use part applications based on additive manufacturing.

So, the combination of those two plus RedEye basically covering the full spectrum that any customer can imagine with respect to end use parts or prototyping. If you go the rational of the deal, we said all the way that, first of all, we do this standalone business and it’s growing and should be growing in profitable business.

We believe this combining of RedEye with Solid Concepts and Harvest Technologies will create a platform that will allows Stratasys to extend our end user part strategy.

And we believe that once we merged this very large service deals with the Stratasys operation, it will create opportunities for both selling machines and parts to a very, very large customer base..

And in terms of the pipeline or backlog, any data you could share on that?.

We’re not disclosing or sharing backlog information during the year. We will be able to do that at the end of this year..

Okay thank you very much gentlemen..

Thank you..

[inaudible]. Please proceed..

Thank you. I wanted to ask about the North American revenue growth exactly. It looks like revenue was actually down year-over-year, particularly with MakerBot and I wanted to see if I take it some color on what’s happening there and what’s the outlook is on that? And then I have the follow up..

The MakerBot grew almost 80% quarter-over-quarter. It’s given on slides. With respect to the core business of Stratasys in North American operation we saw a significant growth during the Q1-over-Q1. So, I’m not sure where this conclusion came from..

Hi. This is Erez here. I’m not sure that your numbers are correct. Remember that, North America business is almost 50% of the business and it should grow close to the organic growth of the entire business to allow us to grow more than 30%. So, no, there was a strong growth, business in North America and we can catch of later on.

I think that your numbers are wrong..

Okay. So, I must pull back that numbers. The other question I had is on the new materials and this goes to be acquisition of Interfacial as well as the new materials introduced outside of that acquisition.

Do you see the new materials as just selling incremental materials or does adding the new material help you actually to sell systems to people who otherwise might not buy them?.

Combination of both and by offering to the market or to existing customers new materials, typically we seen increase in machine utilization. By the way we see, increased machine utilization across all our technologies year-over-year. So, people are using the machine more.

Part of this increased utilization is coming from the fact that we offering new and improved materials. And the other part of it, yes, the answer is yes. Some customers are waiting for specific materials and if we are providing them, they are becoming a machine buyers. So the answer is yes for both..

Great. And you mentioned taking orders for the MakerBot, so not shipping yet.

In general, do you take orders in advance for shipping the more traditional machines, the large systems as well and could you give us a sense for the sales cycle on that?.

Usually, we do not take order in advance and not early reporting that to core business of Stratasys. MakerBot, it’s a different business, different sales cycle, different market, different customers and we do take relatively a long time ahead for order for shipment that will happen in the following weeks, sometimes in even months.

It help us to build inventory and adjust to ramp up production of for those units, if it’s a significant number units that are being shipped..

Great. Thank you..

Ajay Kejriwal, FBR please proceed..

Thank you. Good morning. I know a lot of questions around the SG&A, but maybe if I could ask one more. And this is related to the business model.

So David, how would you characterize the MakerBot’s business model? Is that inherently more SG&A intensive or would you say that what you saw in this quarter was more related to new product introductions and some more trends in overtime it should normalize to the businesses you have?.

I think we’re in the early stage of exploring the MakerBot product line and exploring the potential growth there.

So, at this point of time, the growth is driven by both R&D investment and substantial investment in sales and marketing and I will describe it as infrastructure activities, channel buildup, channel training and different other infrastructures.

At this point of time, the company is growing rapidly and requires investments in both R&D and sales and marketing as such..

Okay. And then, I thought one of your comments was that, the SG&A increase a lot of that’s in the infrastructure.

Is that implication that, a lot of that is fixed or would you say flexibility for the course of the year to kind of tune that up or down in dollar terms?.

As I just hinted that to continue what Erez said to answer the question whether there is a some leverage toward the continuation of the year. So by saying that some of the investment on the MakerBot has to do with infrastructure again have this effect is some leverage into model even towards the end of this year..

I would add that, David. In general, we try to manage the incremental investment activity as much as possible for viable the investments. We do not always succeed to do it, but we try to manage to plan that we have much possible more on the viable part of the investment..

Got it. And then gross margins good to see 60% plus so that’s a good number.

What’s your confidence that this margin is sustainable for the course of the year especially with the MakerBot ramping up further from here?.

I think that, the combining gross margin despite the fact of MakerBot gross margin which is lower than the traditional business went up this quarter. I think that, we have a high level of confidence that the gross margin in 2014 will be at the level of 2013, maybe a little bit higher.

I think that MakerBot despite their very lower gross margin, they do have healthy margins at the end over it..

Thank you very much..

You’re welcome..

[inaudible]. Please proceed..

Thank you for taking my questions, Erez and David. I would like to ask you a few on the nature of Harvest Technologies and Solid Concepts business. Specialty it may lead to like another aggressive investment and then I would appreciate if you can share your expectations by the intensity of the integration may look like..

Maybe I’ll start with the second part of it. The integration has two elements. One of them is that first of all we need to integrate operations of the Harvest Technologies, Solid Concepts and RedEye, which we started early part of it now with a very organized way of tendering this kind of PMI.

And later on, like we said in the presentation, we are going to explore and integrate some of those activities together with the Stratasys core business to leverage the ability to sell more machines and more parts to this very large customer base that we are creating. In respect to the needed investment, I am not sure I am clear on the question..

I am wondering it may involve like a lot of operating expense investment and like capital investment?.

I think that, we are still early in meeting the process of PMI and planning and putting on the table, the different plans that we want to view. Obviously, we didn’t take any decision yet. I think we will be able to share more information and more regarding our plans moving forward one close transaction of both companies..

Okay. Thank you..

Steve Milunovich, UBS. Please proceed..

Yes. Could you update us on your U.S.

plant and as much revenue from that plan in your plan for the year?.

I am not sure. I understand your question.

Can you clarify the question?.

New plans that you’re building for Objet sort of what’s the timing on that looks like and are you assuming much revenues on that?.

Okay. So, the new plant that we are building in Israel here is actually we’re expanding the capacity of PolyJet printers and materials to fulfill our client need and customer needs for 2017. It doesn’t have impact on revenue, but it’s more on the operations side and we want to able to meet the capacity needs in the new two to three years.

The facilities it is ready and will be fully operated at the beginning of next quarter. We actually doubled the capacity of production of PolyJet printers and we are doing the same now for the material..

Okay.

And you made a comment about what independent sales agents – what does that compare to? What’s the alternative channel and why are things shifting that direction?.

There are two different go-to-market approach, one of them is for the distributor who is buying the equipment from us and sell it to the end customers. The other one is agent. There is more door open and the full transaction and the risk of the transaction is on our books and on Stratasys.

And we said that, we are trying to expand our go-to-market and reach to the customer while building new or ramping up new network of agents in order to drive more business..

Thank you..

Jonathan Shaffer, Credit Suisse. Please proceed..

Good morning. I was just looking at the slide where you kind of highlight revenue per employee and it seems to suggest that, there has been a significant ramp up in the number of employees kind of North of 50%.

I was just wondering kind of if you could highlight kind of what your headcount plans are going forward and whether you need to as aggressively grow your employee base as you have in this quarter?.

I think that when you grow 25% or more year-over-year you cannot do it without growing your headcounts. When we going ahead and we plan ahead, we try to make sure that our plan include expansion of possible operating expenses for variable cost and not fixed cost. We consider the headcount to be closer to fixed cost rather than variable cost.

But, growing with the pace that we’re growing now and we grew during the last two years, it’s almost impossible to do it without growing headcounts. Add to that the acquisition of MakerBot that added significant number of employees to our headcount number at the end of last year..

And then just a quick one on the maintenance and service revenue, it’s very positive there obviously.

I was just wondering if a higher proportion of your customers are now opting for maintenance and service contracts or if that’s just a function of the install base growing?.

The improving service margin that you see, there is a lot of I would say fee issues. And the first one is, is everything better on efficiency? On the service business and the ratio of number of machine to engineers. Engineers who can serve more machines with same of number of – or growing slowly the number of engineers, number of hours is going down.

So, the operational on module of the service is getting better and more efficient.

We are growing through high-end product and usually the high-end product calls for service contact and it’s more difficult for customers to serve the high-end product by themselves, compared to a low-end product, and I think there is also some I don’t know if you recall, but we changed the account treatment of royalty at the beginning of last year and this is the first quarter actually that we see the full impact on the service margin..

Thanks very much..

Brian Drab, William Blair. Please proceed..

Hi. Just wanted to quickly ask on MakerBot. In the third quarter we only had half a quarter, but run rate was around $23 million in revenue for Maker and about $25 million in the fourth quarter and then $21 million in the first quarter.

But I am getting the sense from your comments today that, Maker was above expectations in the first quarter, is that true? And if it’s down from those previous two quarters, why would that be above expectation?.

I think that the number that that you have for Q3 is not a correct number..

I did $11.5 million in Maker revenue and in Q3 and I don’t know you did for the full quarter but it’s not less than $20 million..

No. It was not equally spread between the two parts of the quarter. The MakerBot team was extremely busy in the first part of Q3 with the closing transaction with the Stratasys, that had impact on their business.

Nevertheless, Q4 was strong and we said at the end of the last quarter that, this does not represent a typical run rate for the MakerBot business. It’s usually Q4 for them is a strongest throughout the year and sometimes equal to the business of 1.5 or 2 quarters together.

And we did expect a decrease from Q4 for the MakerBot business and this is what happened. The HCF in Q1 and we see this new product, most of them not available in and we do expect to have ramp up in revenue in H2..

Okay.

So Maker was ahead of your expectations, but quite a bit in the first quarter then?.

I didn’t say so. When we did that internal expectation of MakerBot then we say this will be lower in Q4..

Okay. And then I know there has been few questions around SG&A, but just want to ask you may be in a slightly different way.

Given operating margin for the full year 2014 to be consistent with ‘13, we know the first quarter results using the midpoint of your revenue guidance we have to see 21% to 22% operating margin for the balance of the year with a actually a sequential step down in SG&A dollars.

Is that fair to expect that?.

I assume that the operating leverage that you can expect in the rest of the year, especially in H2, is combined from higher revenue. If you look at the guidance of 40:60, actually significantly higher revenue. I would say modest increase in operational expense..

So, from the first quarter SG&A goes up or down in terms of dollars?.

In terms of dollars, it will not go down. It will not go up as fast the revenue will go..

Okay. Thank you..

Ladies and gentlemen, I would now like to turn the call over to Mr. David Reis for closing remarks..

Thank you for joining today’s call. We look forward to speak with you again next quarter. Thank you and good bye..

Thank you for joining today’s conference. This concludes the presentation. You may now disconnect. Have a very good day..